Federal Circuit Precedential

Holding:  Proving vicarious liability of a system claim requires showing that a first party directed or controlled a second party’s use of the system as a whole, not just a portion of the system. 

CloudofChange owns US Patent Nos. 9,400,640 and 10,083,012, which are directed to a web-based point of sale (POS) builder system that allows business owners to easily assemble and modify a POS system to manage their business.  The claimed system requires one or more POS terminals connected to a remote web server via an internet connection.  The remote web server is hosted by a vendor and operated as a vendor subscription service that includes the POS builder system software.  The POS terminals access and interact with the POS builder system software on the remote server to allow the business owner to make changes to their POS display.

CloudofChange accused NCR’s product, NCR Silver, of direct infringement of the ‘640 Patent and the ‘012 Patent.  NCR Silver allows merchants to edit POS menus, perform transactions, and build their own POS displays.  NCR Silver requires POS hardware and an internet connection NCR’s backend service.  Most users supply their own POS hardware, and NCR requires the user to supply and maintain the internet connection to the NCR backend server. 

To prove direct infringement, CloudofChange relied on vicarious liability and cited Centillion Data Sys., LLC v. Qwest Commc’ns Int’l, Inc., 631 F.3d 1279 (Fed. Cir. 2011), which addresses the issue of infringement for “use” of a system that includes elements in possession of more than one party.  According to Centillion, a party “uses” a system for the purposes of infringement if the party controls the system as a whole and benefits from the system.  In particular, CloudofChange argued that NCR’s requirement that its customers maintain internet access at their own expense showed that NCR controls the customer’s use of NCR Silver. 

At the district court stage, a jury found NCR to directly infringe the ‘640 Patent and the ‘012 Patent.  The district court then denied NCR’s motion for JMOL of no infringement.  The district court acknowledged that NCR does not control the entire network for the NCR Silver system, and that NCR’s customers are the users of the NCR Silver system.  However, the district court found NCR vicariously liable since NCR controlled its customers’ use of the NCR Silver system by directing its customers to maintain internet access to access NCR’s backend servers.

The Federal Circuit reversed the district court’s denial of JMOL and vacated the jury verdict, finding that NCR did not use the claimed system as required for direct infringement.  The Federal Circuit found that NCR’s customers are the users of NCR Silver, not NCR.  The customers initiate service at their POS terminal and benefit from the backend servers that provide that service.  Therefore, the customers control the system and obtain a benefit from the system.  The ancillary benefits that NCR receives from the NCR Silver system in the form of monthly subscription fees, product ideas, and transaction data are not the recited purpose or result of the use of the claimed system.

The Federal Circuit also found that NCR is not vicariously liable for the use of the NCR Silver system by its customers.  NCR does not control or direct their customers’ use of most of the features of the NCR Silver system.  The fact that NCR requires their customers to obtain and maintain their own internet access to use NCR Silver does not equate to NCR controlling their customers’ use of the entire NCR Silver system.  Directing a customer to perform one element of a system claim is not the proper test for determining vicarious liability for use of a system claim. 

Full Opinion (PDF)